Another information coming from Yang Ming:
Yang Ming outlines financial recovery plan
JOC. Jan 22, 2017
Yang Ming Line said it can draw on a $1.9 billion state fund should it need financial assistance as the carrier prepares a recapitalisation plan that will see the Taiwan government extending its stake in the company well beyond its current 33 percent.
The stock consolidation plan was approved at a shareholder meeting in December, a month after the Taiwanese government made available a $1.9 billion assistance program for the country’s shipping industry, the carrier said in a customer advisory seen by JOC.com.
“While the predictions for 2017 appear to show some improvements for carriers, Yang Ming remains prepared to take any measure necessary to maintain its competitiveness,” the advisory said.
“Yang Ming will continue to take a conservative approach in its actions, but Yang Ming is fully aware of and prepared to exercise on its option to draw on the $ 1.9 billion in government-backed funding should circumstances in the market arise requiring for such assistance.”
Like most of the world’s container lines, Yang Ming’s financial results were in poor shape last year. Revenue in the first three quarters of 2016 fell 17 percent year-over-year to $2.6 billion as the company booked a loss of $407 million.
The Taiwan carrier said its recapitalisation plan was designed to pare down accumulated losses through fresh injection of capital from new investors.
“The first stage of this injection of capital will be from various government and private entities, including banks and financial institutions,” the carrier advisory said. “Yang Ming will issue new stock to these investors, and with the new capital Yang Ming expects immediate benefits to its balance sheets. With this strong showing of government support, it is also expected to help enhance additional private sector investment in Yang Ming.”
The carrier never gave an indication of just how much of the company will be owned by the Taiwan government, saying only that, “It is also anticipated that the recapitalization plan will result in a larger percentage of government owned and controlled interest in Yang Ming, well beyond the current approximate 33.3 percent held by the Ministry of Transportation and Communications of Taiwan.”
The customer advisory from Yang Ming was partly in response to a report by Drewry that expressed concern at the carrier’s high debt levels that even an improving freight market would not address without a restructuring plan. With its 2016 losses and a heavily leveraged balance sheet, the analyst described Yang Ming as the next Hanjin.
In a bit to ease customer concerns, the Yang Ming customer advisory said the line was not in default of any obligations. “Yang Ming has never approached its creditors with any demands to restructure any part of its debt, and Yang Ming does not have any intention to do so going forward.”
The line has also been caught up in merger speculation, but Yang Ming chairman Bronson Hsieh said at a press conference that the carrier has no intention of merging. He reiterated a point made to JOC.com late last year that with the state owning more than a third of the carrier, a merger was not an option.
At the same press conference, Hsieh said smaller carriers did not automatically have to be merged and small lines could still be profitable. He was referring to the drive for scale that was behind the wave of container shipping line mergers and acquisitions of 2016. Yang Ming has a container fleet capacity of 579,048 TEU, according to Alphaliner, which gives it a 2.8 percent share of the global market.
There is a general rule of thumb among maritime analysts that having a capacity of under 1 million TEU means a carrier will not have the market share or be able to achieve the economies of scale and lower unit costs required to compete in an oversupplied and low freight rate environment. This line of thought also saw Orient Overseas Container Line, roughly the same size as Yang Ming, recently being labelled a takeover target with Cosco Shipping, CMA CGM and Evergreen all listed as potential suitors. OOCL parent company OOIL said in a filing to the Hong Kong Exchange that it has no knowledge of any bid.
But not everyone believes that increasing scale is the only way for a carrier to survive. Andy Lane, partner at CTI Consultancy, said profitability would be equally driven by people quality and process excellence, and this would be how the likes of OOCL and the smaller profitable players outshone their larger peers.
Lane said scale was merely one of multiple profit drivers, and scale was potentially less significant for a smaller carrier working within large alliances. Yang Ming is a member of THE Alliance and OOCL belongs to the Ocean Alliance, both of which will launch operations in April.
The supply chain director for a major Asia-Europe shipper agreed that being a member of an alliance gave a smaller carrier access to the scale economics enjoyed by its larger partners.
“If you are in an alliance with partners that deploy 20,000 TEUs, you can still be 5 percent of the alliance and provide a good service. The share will be a little smaller than the rest, but if the front and back end of the business are well managed, I don’t see why a smaller line cannot survive,” he said.
OOCL has six 20,000 TEU ships on order that are scheduled for delivery in 2017.